Where Are We Headed?
This weekly is on the early side and I am wary of what Friday brings, especially as the debt ceiling saga gives rise to further bond market volatility.
The latest manufacturing figures are very strong for the UK, EU and US. Each has a different story – UK firms are adapting well and the current lockdown is not proving as obstructive as initially thought. EU factories are humming away due to demand for exports. The US came in stronger than expected despite the severe cold weather last month. Services was a mixed bag. The UK and US are doing well with confidence rising, in part due to their vaccination rollout. The EU is still in contractionary phase even though there was a small uptick. The renewed lockdowns in France and Germany could be yet another setback.
EU authorities have developed technology allowing investors to buy and sell securities using blockchain in return for Central Bank money. The German Bundesbank claimed their solution was the first to allow the proceeds from sold securities to be received on account at the Central Bank. The European Central Bank is now exploring the creation of a digital Euro as the need for physical notes and coins is quickly diminishing. It also helps with the monitoring of transactions by authorities and regulators - transparency and lack of regulation remain the primary obstacles for cryptocurrencies.
“A rip roaring recovery looms for the UK if consumers spend just a bit of the savings they’ve socked away during the pandemic”. This was the view of Bank of England Chief Economist. About £150bn has been saved, mostly by higher income households. He went on to say “When it comes (speaking on the recovery), it will come fast and it will be large”. Many hope he’s right. The UK, as many other nations, now has an enormous debt mountain to climb.
In the US, Biden’s advisers are working on an infrastructure, climate and economic aid plan that could cost $3TN to $4TN! It is intended to go well beyond roads and bridges and to cover major investment in manufacturing and new technologies.
CPI Inflation in the UK dropped to 0.4% (Jan: 0.7%), half what had been anticipated. A big drop in clothing (-5.7%) was the driver due to excessive inventory but petrol rose 2.9% and factories’ raw material costs (something that tends to feed through into consumer prices later) were 2.6%.